Marquette Law Review
Volume 60
Issue 3 Spring 1977
Article 11
Antitrust Law: The state Action Exemption.
(Cantor v. Detroit Edison Co.)
Grace Shaver Figg
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Grace Shaver Figg, Antitrust Law: The state Action Exemption. (Cantor v. Detroit Edison Co.), 60 Marq. L. Rev. 952 (1977).
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RECENT DECISIONS
Antitrust Law - The State Action Exemption- In
Cantor v. Detroit Edison Co.,' a retail druggist selling light
bulbs charged that the local utility company, Detroit Edison,
was using its monoply power in the distribution of electricity
to restrain competition in the sale of light bulbs.' The alleged
anticompetitive behavior was a "lamp exchange program"
through which Detroit Edison customers received free electric
light bulbs in exchange for burned-out ones. Thus, the price
charged for electric power reflected the added cost of supplying
"free" light bulbs. When the state began to regulate Detroit
Edison in 1909, the company did not eliminate this pricing
practice. Thereafter, the Michigan Public Service Commission
periodically approved tariffs for electric power which included
the cost of the replacement bulbs. Once approved, the electric
rates could not be changed or the light bulb exchange discontinued without the Commission's approval. As a result of this
distribution system, Detroit Edison provided fifty percent of
the standard size electric light bulbs used in southeastern
Michigan homes.
The lower courts' held that the Detroit Edison lamp exchange program was state action exempted from antitrust liability under Parker v. Brown.4 In a closely decided case, the
Supreme Court reversed.' The plurality decided that the
Parkerrationale should not be extended to cover private action
which was merely approved by the state and which must be
continued while the state approval remains effective. Consequently, according to the court, the Parkerrule offered Detroit
Edison no protection from the antitrust law. The Court remanded the case for an application of the federal antitrust
laws.
1. 96 S. Ct. 3110 (1976).
2. Petitioner's complaint asserted that respondent's light bulb exchange program
violated §§ 1 and 2 of the Sherman Act, 15 U.S.C. § 2 (1970), and § 3 of the Clayton
Act, 15 U.S.C. § 14 (1970).
3. Cantor v. Detroit Edison Co, 392 F. Supp. 1110 (E.D. Mich. 1974), aof'd, 513
F.2d 630 (6th Cir. 1975) (unpublished decision).
4. 317 U.S. 341 (1943).
5. Justice Stevens wrote the plurality decision, joined in by Justices Brennan,
White and Marshall. Chief Justice Burger and Justice Blackmun wrote concurring
opinions. Justice Stewart wrote a dissenting opinion in which Justices Powell and
Rehnquist joined.
19771
RECENT DECISIONS
According to the plurality in Cantor, the application of the
Parkerrule to Detroit Edison's lamp exchange program would
be a gross distortion of that decision. The Court came to this
conclusion by first assuming that certain facts in the Parker
case were necessary to the decision. Thus the Cantor holding
depends on the factual distinctions perceived by the court between that case and Parker.
Parker v. Brown' involved a program under the California
Prorate Act which regulated the marketing of raisins in that
state. This program was specifically intended to restrict competition among growers and maintain prices in the distribution
of their product to packers in order to "prevent economic waste
in the marketing of agricultural products" ' 7 in the state. An
Agricultural Prorate Advisory Commission consisting of one
state official, the Director of Agriculture, and eight members
appointed by the governor, administered the program. The
purpose of the Commission was to set quotas on raisin production in various areas of the state and to establish procedures
to be followed in the marketing of the raisins. Even though the
Commission set the production quotas, private producers
played an important role in the operation of the program. For
example, petitions for specific quotas and regulations came
from the raisin producers themselves. Following commission
approval of the petitions, consent of sixty-five percent of the
producers in the area was necessary to establish the program
as law.
Upon these facts the Parker Court established the state
action, exemption doctrine, holding that "[t]he state . . . as
sovereign, imposed the restraint as an act of government which
the Sherman Act did not undertake to prohibit. ' '8 Although the
court acknowledged the impact of private action on the marketing program, it relied on the totality of circumstances to
determine that the program was essentially state action. The
court observed that, although the producers made the proposals and voted on referenda, it was the state itself "which
adopt[ed] the program and which enforce[d] it with penal
sanctions, in the execution of a governmental policy." '9 Thus,
6. 317 U.S. at 346.
7. Id.at 352.
8. Id.
9. Id.
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[Vol. 60:952
in Parker the exemption rested on the fact that the state as
sovereign was the primary decisionmaker in the implementation of the anticompetitive program.
After Parker was decided in 1943, the Supreme Court did
not reexamine the state action exemption doctrine until the
1951 case of Schwegmann Bros. v. Calvert Corp.'I In that case
the Court again emphasized the necessity for the state to be the
prime mover in the anticompetitive program. In Schwegmann
the plaintiff challenged a state fair trade law which required
retailers to comply with private resale price maintenance
agreements for trademarked commodities, even though they
were not parties to the agreement. The Court held that state
authorization of a price fixing agreement does not give it immunity from antitrust liability under the Parker rationale."
According to the Court, "when a state compels retailers to
follow a parallel price policy, it demands private conduct which
the Sherman Act forbids."' 2 This holding was based on the
statement in Parkerthat a state cannot immunize the anticompetitive conduct of private parties.'3 Thus, the Schwegmann
Court characterized the retailer's price fixing agreement as private action, but made no real attempt to distinguish it from the
raisin marketing plan in Parker. Both cases involved a blend
of public and private action, but Schwegmann failed to give an
adequate rationale for the different outcomes in the two cases.
The Court's most recent treatment of the state action exemption prior to Cantor was Goldfarb v. Virginia State Bar,"
in which it again applied the Sherman Act in spite of an attempt to invoke the Parker exemption. The plaintiffs in
Goldfarb challenged the minimum fee schedules for attorneys'
services which the local bar claimed were "prompted" by the
state bar, a state agency by law.' 5 According to the Court, the
10. 341 U.S. 384 (1951).
11. Some writers have suggested that the Parker rationale was modified by the
Schwegmann ruling. See Donnem, Federal Antitrust Law Versus Anticompetitive
State Regulation, 39 ANTITRUST L.J. 950, 960 (1970).
12. 341 U.S. at 389.
13. 317 U.S. at 350.
14. 421 U.S. 773 (1975). For a complete discussion of the effect of Goldfarb on the
Parkerdoctrine, see Tyler, Goldfarb v. Virginia State Bar: The Professionsare Subject
to the Sherman Act, 41 Mo. L. REV. 1 (1976).
15. VA. CODE § 54-49 (1974) provides:
ORGANIZATION AND GOVERNMENT OF VIRGINIA STATE BAR. - The Supreme Court
of Appeals may, from time to time, prescribe, adopt, promulgate and amend
19771
RECENT DECISIONS
"threshold inquiry" in determining whether the Parker state
action exemption applies is "whether the activity is required
by the State acting as sovereign." 6 This threshold inquiry resolved the case because the State of Virginia through its supreme court rules did not require the minimum fee schedules
of either the local or state bar. Goldfarb interpreted Parker to
mean that "[i]t is not enough that . . . anticompetitive conduct is 'prompted' by state action; rather, anticompetitive accompelled by direction of the State acting as
tivities must be
7
a sovereign."'
Thus, in over three decades, the Supreme Court only twice
sought to clarify the Parker doctrine. The simple fact that the
Cantor decision comes less than two years after the previous
state action exemption case in itself suggests a new attitude by
the Court toward the Parkerdoctrine. Both of the earlier cases
emphasized the limiting language of Parkerthat "a state does
not give immunity to those who violate the Sherman Act by
authorizing them to violate it, or by declaring that their action
is lawful .... ,,,s However, Cantor went much further than
either Schwegmann or Goldfarb in narrowing the Parker exemption. The language in Cantor suggests that a doctrine
which has seemed immune to Supreme Court scrutiny is now
likely to be further circumscribed by that Court. The Court has
begun to limit the doctrine by a case-by-case adjudication of
specific factual situations.
This case-by-case approach to the state action exemption
is expressly called for in Cantor. The plurality explicitly rejected any attempt to fashion "a rule which would govern...
in all future cases presenting state action issues . . . ."" The
Cantor Court's methodology was to view several of the facts in
Parker as essential to the Parkerrule. Thus, these facts must
now be found in any case claiming the state action exemption.
rules and regulations organizing and governing the association known as the
Virginia State Bar, composed of the attorneys at law of this State, to act as an
administrative agency of the Court for the purpose of investigating and reporting the violation of such rules and regulations as are adopted by the Court under
this article to a court of competent jurisdiction for such proceedings as may be
necessary, and requiring all persons practicing law in this State to be members
thereof in good standing.
16. 421 U.S. at 790 (1974).
17. Id. at 791.
18. 317 U.S. at 351.
19. 96 S. Ct. at 3123.
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According to the Court, one of the distinguishing facts of
Parker was the identity of the defendants. Parkerinvolved official action taken by state officials, while the only defendant in
Cantor was a private utility company. By making this distinction, the plurality necessarily implied that the raisin producers
in Parker would not have been protected from antitrust suit.
The Court stated that "[w]hat sort of charge might have been
made against the various private persons who engaged in a
variety of different activities implementing that program is
unknown and unknowable because no such charges were
made." Thus, Parker was interpreted as a shield for the state
officials only. This language in Cantor precludes an interpretation of the state action exemption which would protect the
entire state program from antitrust scrutiny.' Yet, many state
regulatory systems depend at least partially on the participation of private parties. Under Cantor these private parties are
now subject to antiturst liability and thus may be less willing
to participate in the state program.
Moreover, the plurality's interpretation of Parkerwas illogical. That decision protects a state agricultural program by insulating the public officials from antitrust liability. But according to Cantor, this protection of the public officials would
not also protect the program. The plaintiff could still have
destroyed the state program using another route, by suing the
raisin producers for their part in the program. This tactic effectively would have ended the participation of the producers in
the raisin marketing program. Since the producers' participation was essential to the program, the state's regulation of
raisin production would have failed as a result. If the identity
of the defendants in Parker was determinative, as the Cantor
court held, Parker offered very little real protection for state
22
action.
The second factual distinction relied on by the Cantor
Court was the dominance of the private party in the decisionmaking process. In Parker the primary decisionmaker was the
state agency, while in Cantor the state action amounted to
"little more than approval of a private proposal." 3 This dis20. Id. at 3122.
21. Id. at 3120.
22. The disent contended that the plurality has thus "trivialized [Parker]to the
point of overruling it." Id. at 3129.
23. Id. at 3123.
19771
RECENT DECISIONS
tinction led the plurality to conclude that it would not be unfair to subject the Detroit Edison Company to antitrust suit for
its lamp exchange program. 24 The Court recognized that in
some cases imposing liability on the private party would be
unfair, but it did not allow this concern to blossom into an
umbrella of state action protection for any private interest
group adept at -manipulating state agencies or legislatures to
approve their anticompetitive programs.
This manipulation of state agencies and legislatures by private parties is further discouraged by Cantorbecause the Court
refused to apply the Noerr doctrine2 as well as the Parkerrule.
Eastern Railroad Presidents Conference v. Noerr Motor
Freight,Inc.25 held that the concerted lobbying activities of the
railroad defendants to oppose legislation desired by the plaintiffs was not prohibited by the Sherman Act. The rationale of
the Noerr doctrine is that antitrust considerations are outweighed by the first amendment right to petition the government for redress of grievances and by the desirability of public
participation in government, even when that participation is to
promote private interests. However, in CaliforniaMotor Transport Co. v. Trucking Unlimited" the Court made clear that a
"sham" participation in governmental processes will not be
protected by the Noerr doctrine. Cantor further clarified the
availability of the Noerr doctrine by holding that its protection
is limited to private petitioning to affect actions of state governments. Parker thus protects the resulting state action from
antitrust scrutiny, but neither case offers protection when the
state merely authorizes private action rather than acting itself.
The dissenting opinion in Cantor contended that the Noerr
doctrine should be applied to the case." Justice Stewart viewed
the lamp exchange program as a two-step process. First, a pri24. Compare the dissenting view:
This attempt to distinguish between the exemptive force of mandatory state
rules adopted at the behest of private parties and those adopted pursuant to the
State's unilateral decision is flatly inconsistent with the rationale of Noerr.
Id. at 3134.
25. Eastern R.R. Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127
(1961). For an analysis of the relationship between Noerr and Parker, see Handler,
Twenty-Fourth Annual Antitrust Review, 72 COLUM. L. REV. 419 (1972).
26. 365 U.S. 127 (1961).
27. 404 U.S. 508 (1972); accord, Otter Tail Power Co. v. United States, 410 U.S.
366 (1973).
28. 96 S. Ct. at 3133.
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vate party proposes a tariff. This action is protected by the
Noerr doctrine. Once the state approved the proposal, the state
compelled the private party to engage in anticompetitive conduct in obedience to law. This activity should be protected by
Parker, as interpreted by Goldfarb.
The plurality rejected the dissent's argument that the
Noerr doctrine was relevant to the Cantor case. According to
the Court, Noerr "did not involve any question of either liability or exemption for private action taken in compliance with
state law." 9 In other words, the Detroit Edison Company could
safely petition the state legislature to adopt a tariff which included a lamp exchange program. But the Noerr protection
would then have no effect on a later suit against the company
when it complied with the tariff it successfully petitioned for.
Although the Cantor plurality refused to apply the Noerr
doctrine to a state action situation, it did apply another theory.
According to the Court, "the standards for ascertaining the
existence and scope of [the Parker] exemption surely must be
at least as severe as those applied to federal regulatory legislation."3 This reasoning lead the Court to conclude that the long
line of cases 31 which have established an immunity from antitrust liability for federal regulatory legislation in conflict with
the prohibitions of the Sherman Act can now be applied by
analogy to state action cases. The standard adopted by Cantor
from the federal immunity cases is that the regulatory activity
is exempt only to the extent necessary to protect the achievement of the aims of the particular legislation.32 This rationale
offers a more flexible test for state action exemption. Under the
federal implied immunity decisions there can be a total exemption, a partial exemption, or no exemption at all. 33 Accordingly,
the Cantor Court found only a partial exemption for the action
of the Detroit Edison Company. The rate setting was ruled
valid only insofar as prices are set for the electric power and
29. Id. at 3122.
30. Id. at 3120.
31. Gorden v. New York Stock Exchange, 422 U.S. 659 (1975); United States v.
National Ass'n of Securities Dealers, 422 U.S. 694 (1975); United States v. Philadelphia Nat'l Bank, 374 U.S. 321 (1963); United States v. Borden Co., 308 U.S. 188 (1939).
32. Authorities cited supra note 31. See also Silver v. New York Stock Exchange,
373 U.S. 341 (1963).
33. In the implied federal immunity decisions the Court found either a total exemption, partial exemption, or no exemption at all. See Handler, Twenty-Fourth
Annual Antitrust Review, 72 COLUM. L. REv. 1, 14 (1972).
19771
RECENT DECISIONS
not for the bulbs. Using the same rationale, state regulation of
insurance companies, professionals or tradesmen may in the
future be held only partially exempt from antitrust scrutiny.
The Cantor Court not only added flexibility to the Parker
doctrine, but it also squarely faced the difficult substantive
issues involved. The most important question in a Parkersituation is whether the state and federal policies actually conflictThe policies of the two sovereigns were in direct conflict in the
Parker case. The agricultural marketing program was governmental regulation, the very purpose of which was to avoid the
consequences of unrestrained competition in the raisin industry, an essential industry to the economy of California. The
state regulation of public utilities in Cantor presents no similar
conflict between state economic policy and federal antitrust
policy. Consequently, the application of the antitrust laws to
the lamp exchange program does not impair the state's interest
in regulating the distribution of electricity. The Court held that
the Parker rationale does not apply because "[tjhe mere possibility of conflict between state regulation and federal antitrust policy is an insufficient basis for implying an exemption
from the federal antitrust laws." 4
Even though the Court found no conflict between state and
federal policy in Cantor, it stated further that "even assuming
inconsistency [between state and federal policy] we could not
accept the view that the federal interest must inevitably be
subordinated to the State's. ' 35 Thus, the plurality did not proceed to specify when the state policy promoting the anticompetitive behavior would prevail. However, Justice Blackmun,
concurring, advocated a special rule of reason: 36 antitrust scrutiny should be less strict when the state has sanctioned the
particular anticompetitive activity. This diluted rule of reason
would allow more factors to figure in the calculus of harm and
benefit than does the classic rule of reason analysis. Factors
such as the state's concern for health and safety or the importance of substituting the state itself for the forces of competi34. 96 S. Ct. at 3120.
35. Id. at 3119.
36. Id. at 3126. The traditional "rule of reason" in antitrust cases provides that
only unreasonable restraints are unlawful under the Sherman Act. This rule allows a
defendant to justify anticompetitive behavior by showing that its benefits outweigh its
harms. See Standard Oil Co. v. United States, 221 U.S. 1 (1911).
MARQUETTE LAW REVIEW
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tion, would tend to make the activity permissible, in spite of
its anticompetitive effect.
Justice Blackmun actually advocated a substantive economic review of the state action.3 7 His analysis is a type of
judicial review not dissimilar to that engaged in by the Supreme Court in the 1930's to interpret the due process clause."
Just as in the 1930's, a federal judiciary of "nine old men"
would now be substituting its economic judgment for that of
the state legislators. Concededly, in any antitrust case, the
courts must exercise some degree of economic judgment. However, under the traditional rule of reason cases, these economic
judgments are not applied in the context of conflicting state
legislation. In cases involving state action, any judicial holding
that the anticompetitive behavior is sufficiently unreasonable
to justify antitrust liability will necessarily impinge upon the
sovereignty of the states and the functions of their legislators
in our federalist system. Thus, Justice Blackmun's proposal for
the application of a special rule of reason to state action presents the most innovative approach. In any event, his proposals
are unlikely to be followed because a plurality of the Court has
indicated a contrary approach toward the limitation of the
Parker doctrine.
The plurality decision suggests that the Court will not use
substantive economic evaluations of state programs to limit the
Parker doctrine. Instead, the Court has intimated its preference for a procedural review of state economic regulation. This
review would evaluate the nature of decision-making procedure
within the state regulatory scheme. If the state is in fact actively making and implementing the decision, then the Parker
umbrella of protection will cover the anticompetitive program.
The Cantor approach of scrutinizing the decision-making
process could be improved by including procedural due process
protections for those affected by the anticompetitive state regulation. The Cantor Court established that the federal antitrust immunity cases apply by analogy to state action exemption cases.39 The federal immunity cases have developed a rule
37. An elaborate argument in favor of the substantive evaluation of state anticompetitive regulations can be found in Slater, Antitrust and Governmental Action: A
Formulafor Narrowing Parker v. Brown, 69 Nw. U. L. REV. 71 (1974).
38. See generally Verkuil, State Action, Due Process and Antitrust: Reflections on
Parkerv. Brown, 75 COLuM. L. REv. 328 (1975).
39. 96 S. Ct. at 3120.
19771
RECENT DECISIONS
that federal regulatory statutes lose their immunity from antitrust scrutiny when the acts fail to provide a mechanism to
safeguard the public interest. 0 If significant individual rights
are infringed, then those affected must be offered an opportunity for a hearing which comports with due process. The application of this rule to the state exemption cases would offer strong
protection to the consumer against special interest legislation
that is passed and then conveniently forgotten.
When the Cantor Court held that state action exemption
should not be more broadly applied than federal immunity
doctrine, the first step was taken toward applying the due process requirements of the federal immunity cases to the state
exemption cases. It is unfortunate that a standard which would
treat equally both state and federal action which conflicts with
the antitrust law was not adopted at this point.
However, full parity of treatment for similarly competitive
state and federal laws may not be the fruits of Cantor. The
decision contains some troublesome indications that the Court
is prepared to subject state regulation to a stricter scrutiny
than federal regulation. First, the Court refused to decide what
course should be taken when state policies conflict with the
policies of the antitrust law. However, the entire decision intimated a negative view toward anticompetitive state regulations.' Secondly, the Court indicated that the private parties
in Parker were probably not immune to antitrust suit. Since
most state economic regulation depends to some extent upon
the participation of private parties, Cantorhas transformed the
Parker doctrine into a meaningless gesture of respect rather
than an actual protection for state programs.
The weakeness of the Cantor decision is considerable.
Parkeris virtually overruled by the Court's focus on the identity of the defendants and the nature of the state program. In
addition, crucial questions concerning the treatment of conflicting state and federal policies have been deferred for later
adjudication. Nevertheless, the Cantordecision can be praised
for finally beginning to define a doctrine that for over three
40. See, e.g., Otter Tail Power Co. v. United States, 410 U.S. 366 (1973).
41. "The Court has consistently refused to find that regulation gave rise to an
implied exemption without prior determining that exemption was necessary in order
to make the regulatory act work, and even then only to the minimum extent necessary." 96 S. Ct. at 3120.
MARQUETTE LAW REVIEW
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decades has troubled lower courts and has fostered a growing
trend toward anticompetitive state-sanctioned economic regulation." That further definition of the state action exemption
3
is sorely needed is evidenced by the inconsistent application
of the Parker exemption to the expanding state regulation of
the economy in such areas as insurance, agriculture, public
utilities, trades, businesses, and professions." Cantor holds
implications for all of these state regulated activities. 5 The
decision promises a case-by-case delimitation of the scope of
the Parkerdoctrine and should immediately signal lower courts
to apply more conservatively the state action exemption.
Parker's umbrella of protection for state economic regulation
is beginning to close.
GRACE SHAVER FIGO
42. See generally Verkuil, State Action, Due Process and Antitrust: Reflections on
Parker v. Brown, 75 COLUM. L. REV. 328 (1975).
43. See, e.g., Posner, The Proper Relationship Between State Regulation and the
Federal Antitrust Laws, 49 N.Y.U. L. REv. 693 (1974). Comment, 84 YALE L.J. 1164
(1975).
44. For a discussion of the recent trend toward increased state anticompetitive
regulations, see Verkuil, State Action, Due Process, and Antitrust: Reflections on
Parkerv. Brown, 75 COLUM. L. REv. 328 (1975).
45. The effects of Cantor have already been felt in Wisconsin. There has been a
re-evaluation of the state regulation of professonals. As a result, a legislative committee has endorsed a constitutional amendment transferring the power to regulate lawyers from the state supreme court to the legislature. It is further proposed that a new
occupational licensing board be created which would assume the regulatory powers
now held by boards consisting of members of the occupation being regulated. These
proposals would make the state more prominent in the decision-making process, and
any anticompetitive activity less subject to antitrust attack under the Cantor standard.